Ballooning US mortgage debt was a major culprit behind the 2008–09 financial crisis. Mortgage debt also caused recessions in Australia, Canada, Spain, and elsewhere.

In Brazil, however, mortgage debt was one of several contributing factors in a severe recession, research finds. The Central Bank of Brazil’s Gabriel Garber, Princeton’s Atif Mian, Northwestern’s Jacopo Ponticelli, and Chicago Booth’s Amir Sufi find that while in some ways the global pattern of household (including mortgage) debt leading to recession extends to Brazil, a variety of factors contributed to its economic bust.

Researchers have spent the past decade unpacking the reasons for the 2008 global financial collapse—and studying booms and busts in individual countries. On the surface, Brazil’s situation appears to resemble that of other countries. Brazilians ran up their household debt fivefold before 2014, when the country then fell into one of the worst recessions in its history. Yet Brazil also had some unique factors at play.

To better understand what happened, the researchers tapped into a data set from the Central Bank of Brazil’s Credit Information System that provided detailed information on credit relationships between individuals and Brazil’s banks. Garber, Mian, Ponticelli, and Sufi extracted a sample covering 15 million people, looking at the type of debt they took on and their outstanding balances, as well as the interest rate and maturity of their loans. They then used data from the Annual Social Information Report (RAIS) to tie borrowers’ credit relationships to their individual labor incomes, to learn more about what types of household debt Brazilians assumed during the boom and how debt affected various segments of the population.

Brazil’s boom, which lasted longer than the three to five years typically seen elsewhere, actually resembles two booms, the researchers find. During the first, from 2003 to 2011, mortgage and credit-card debt rose, but so did auto loans, fueling a rise in car sales. Payroll loans, cash advances based on income, rose from around 20 billion BRL to almost 300 billion BRL (around $190 billion) in 2011. The researchers say this was linked to a 2003 law that allowed lenders to collateralize many of the loans, and thus to lower interest rates and lend more.

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Several other laws and regulations also contributed to the lending explosion, the researchers write. It became easier for banks to repossess a car or a house, which made it more attractive for them to lend. Also, legal reforms increased the availability of credit, particularly for poorer borrowers. The RAIS data set indicates that household debt rose most among lower-income Brazilians from 2003 to 2011, a period that largely overlapped with the tenure of President Luiz Inàcio Lula da Silva, whose Workers’ Party gave cash transfers to low-income families with school-age children and offered below-market-rate home mortgages to low- and middle-income Brazilians. (Lula has since been convicted of money laundering and corruption and is serving a 12-year prison sentence.)

The second part of the boom, from 2011 to 2014, looked different. While mortgage and credit-card debt continued to rise, auto and payroll loans fell. Private-sector banks fueled the credit boom in its early stages; after 2011, they slowed their lending. In turn, government-controlled banks, especially Caixa Econômica Federal, ramped up and drove a large increase in mortgage loans.

The researchers observe that the credit boom emerged from a period of banking reform and macroeconomic stability, during which inflation was under control for the first time in decades. During that time, Brazil saw big capital inflows from foreign investors seeking higher returns amid near-zero US interest rates and the Federal Reserve’s policy of quantitative easing. Those capital inflows, financial reform, and the government’s social programs were likely the key factors in the big expansion of household debt.

“Brazil is an interesting case study given broader trends in the world economy over the past 40 years,” write the researchers, who say credit-registry data similar to what they used in Brazil may become available elsewhere and present more opportunities for study.

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